Carbon Capture and Storage

[ GWh of Electricity Added: ]

32,300

[ Jobs Impact: ]

Low

Medium

High

[ Budget Impact: ]

Low

Medium

High

[ Conventional Pollutants Reduced: ]

SO2

5420 tons

NOx

-3506 tons

Hg

-.651 tons

PM

-.057 tons

[ Megatons of GHG Reduced: ]

39.6

Overview

Carbon capture and storage (CCS) traps carbon dioxide from fossil fuel power plants or industrial plants and then transports captured carbon dioxide by pipeline to underground storage. Recent regulatory developments have brought attention to this emerging technology. Future legal challenges notwithstanding,1 EPA’s 2013 New Source Performance Standards (NSPS)2 will encourage new coal plants to adopt CCS technology. Adopting CCS lets the U.S. continue to take advantage of its domestic coal and natural gas resources, keeps more fossil fuel power plants open, and reduces greenhouse gas emissions. But smoothing the regulatory road and making the necessary investments to get there remain major challenges.

Analysis

In 2011, the U.S. had eight large power plant CCS projects in the works. Three years later, only five continue towards operation,3 due to high and rising construction costs, an unclear ability to recover operating costs, the uncertain regulatory future, and the lack of a national energy plan.4

It is more expensive both to build and operate a CCS plant than an ordinary coal power plant. The very first CCS power projects are designed for coal plants. Analysts estimate a large, new conventional coal power plant costs $ 2.2 billion,5 while an equivalent CCS coal power plant costs 60-80% more.6 In addition, because a CCS plant captures emitted CO2, it is more expensive to operate.7 CCS proponents believe exploiting potential CO2 revenue streams could reduce the added cost to 10-20% for plants that capture half of emitted CO2.8 Future experience constructing CCS plants will lower costs,9 while ongoing R&D efforts may yield cheaper carbon dioxide capture techniques.10

Enhanced oil recovery (EOR) is a mature technology that offers CCS plants an ability to recover operating costs.11 Instead of directing CO2 straight into underground storage, oil field operators buy CO2 and pump it underground into an oil field to increase production. This additional revenue stream lowers the cost gap between CCS and ordinary fossil fuel power. However, 80% of EOR CO2 currently comes mined from natural sources.12 In addition, the market value of mined CO2 is currently far lower than the cost for a power plant to capture CO2. Nevertheless, there is proven potential both to store large amounts of carbon emissions and recover a significant amount of oil with the captured carbon.

The EOR industry has injected CO2 into oil wells for decades using a Safe Drinking Water Act permitting program.13 Now, federal and state governments are beginning to set up legal frameworks specific to carbon storage, but unresolved issues remain.14 Although new permitting processes commonly experience delays, the operator of the first project to file under the new CO2-specific rule is still waiting for an injection permit, more than 30 months after applying.15 Moreover, federal rules assign indefinite liability for eventual CO2 leakage to the project operator.16 Because companies may not exist for hundreds of years, this will be impractical in the long term.

Moreover, because most plants are not and would not be built on or near underground storage facilities, they would need a build-out of CO2 pipeline transportation networks. The U.S. has 4,000 miles of CO2 pipelines, built to carry mined CO2 to oil fields for EOR. These run mainly from the Rockies to Texas, as well as from Mississippi to Louisiana.17 Whether destined for storage alone or EOR operations, sequestered CO2 emissions from other regions will require hundreds, if not thousands, of miles of new pipelines, at significant cost.

Implementation

To continue developing CCS, the U.S. should focus on policies that enhance economic incentives to invest in capturing, using, and storing carbon dioxide.

Revise the Tax Credit for EOR Operations

Congress should amend the §45Q tax credit to make it easier and more attractive to use captured CO2 for EOR operations. The revised tax credit should achieve cost parity, making it as attractive for EOR operators to purchase CO2 from CCS projects as from natural wells.18 Modifications should improve transparency in credit registration and allocation, as well as make it easier to transfer credits. If these changes are made, modeling analysis shows this proposal will generate federal revenue over the course of a decade, as it enhances U.S. oil production.19

Start Permitting Federal Lands for Carbon Storage

The Bureau of Land Management (BLM) should begin to pre-permit federal land for carbon storage. As a starting point, the United States Geological Survey recently identified suitable basins for storing carbon dioxide.20 Previously, BLM has issued programmatic environmental impact statements for wind, geothermal and solar energy, which have significantly streamlined the often time-consuming environmental reviews.21 Building upon this precedent, BLM can pave the way to expedite CO2 storage permitting by conducting comprehensive impact statement and guiding developers through applications for a few specific injection sites on its land. As a further incentive, BLM can allow these projects to inject CO2 without collecting royalties for a limited number of years.

EPA should clarify that EOR operations can continue permitting CO2 injection according to current practices that have been in place for decades. EPA recently directed some EOR projects to file for the new CO2-specific permit.22 As the possibility of having to re-permit wells may make oil field developers wary of buying captured CO2,23 new EPA regulations could stifle the emerging CCS-EOR industry. Similarly, while EPA has directed pilot projects to file for the new CO2-specific injection permits,24 the Agency should allow these to continue using experimental well class designations.

Create a Geologic Sequestration Trust Fund

Congress should create a carbon storage trust fund to provide backup financing for the 50 years after injection is finished but for which continual monitoring is still required. Small companies may have difficulty securing financial proof they can monitor a site or compensate damages for 50 years. While initial government funding would start the trust fund, private funding would replace this as more CCS companies pay into the trust. As a whole, the trust fund would allow Congress to foster more entrepreneurial ventures in CCS.

Make CO2 Capture Eligible for Master Limited Partnerships

As proposed by Sen. Coons, Congress should pass legislation that extends Master Limited Partnerships to CO2 capture and related electricity generation projects, which would open up cheaper and earlier financing options. Master Limited Partnerships are addressed in the PowerBook's Finance Component.

The three withdrawn projects include: AEP Mountaineer Project in New Haven, WV; Southern Company Project in Mobile, AL; and Basin Electric Power Project in Buelah, ND. Three projects advancing with DOE CCS demonstration funding include Texas Clean Energy Project in Penwell, TX; NRG Energy Project in Thompsons, TX; and Hydrogen Energy California in Kern Country, CA. In addition, Futuregen in Meredosia, IL and the Kemper County plant in Mississippi continue as planned. See United States, Congressional Research Service, Peter Folger, “Carbon Capture and Sequestration: Research, Development, and Demonstration at the U.S. Department of Energy,” Report, pp. 10, 16, June 10, 2013, Accessed October 15, 2013. Available at:http://www.fas.org/sgp/crs/misc/R42496.pdf. See also Mississippi Power, “Kemper County Energy Facility.” Accessed March 17, 2014, Available at: http://www.mississippipower.com/kemper/home.asp.

Although the EPA has recognized that leaving liability in the hands of the operator indefinitely is impractical, it lacks the authority to regulate long-term liability or transfer such ownership. See “Update of Selected Regulatory Issues for CO2 Capture and Geological Storage,” pp. 89-90.

“Carbon Dioxide Enhanced Oil Recovery,” p. 10.

The current credit provides just a $10 per ton tax credit to CO2 destined for EOR operations, but the market value of CO2 for EOR, at $10 to $35 per ton, is far lower than the cost of a power plant to capture CO2, at $100 to $150 per ton. See 26 USC Sec., 45Q, 2009, Accessed March 14, 2014. Available at: http://www.law.cornell.edu/uscode/text/26/45Q; See also National Enhanced Oil Recovery Initiative, “Carbon Dioxide Enhanced Oil Recovery: A Critical Domestic Energy, Economics and Environmental Opportunity,” Report, p. 24, February 2012, Accessed December 26, 2013. Available at: http://www.neori.org/NEORI_Report.pdf ; See also “Carbon Dioxide Enhanced Oil Recovery,” p. 17.; See also Mohammed Al-Juaied and Adam Whitmore, “Realistic Costs of Carbon Capture,” Discussion Paper, Belfer Center for Science and International Affairs, p. ii, 2009, Accessed March 17, 2014. Available at http://belfercenter.ksg.harvard.edu/files/2009_AlJuaied_Whitmore_Realistic_Costs_of_Carbon_Capture_web.pdf.

United States, Department of the Interior, United States Geological Survey, “National Assessment of Geologic Carbon Dioxide Storage Resources—Results,” Report, September 2013, Accessed November 18, 2013. Available at: http://pubs.usgs.gov/circ/1386/pdf/circular1386.pdf.

BLM has issued programmatic environmental assessments for solar energy, wind energy, geothermal energy and transmission lines. See United States, Department of the Interior, Bureau of Land Management, “Renewable Energy Resources,” September 23, 2013, Accessed March 14, 2014. Available at: http://www.blm.gov/wo/st/en/prog/energy/renewable_energy.html.

EPA finalized its new, CO2-specific Class VI rule for CO2 storage under the Safe Drinking Water Act in 2010. EPA recently released draft guidance requiring Class II wells to transition to Class VI wells if injecting CO2 becomes a primary purpose according to a determination by the EPA Underground Injection Control program manager. See United States, Environmental Protection Agency, Office of Water, “Draft Underground Injection Control (UIC) Program Guidance on Transitioning Class II Wells to Class VI Wells,” Report, pp. ii, 16 December 2013, Accessed December 30, 2013. Available at: http://water.epa.gov/type/groundwater/uic/class6/gsguidedoc.cfm.

How to Use the PowerBook

The PowerBook is a menu of á la carte options, not a blueprint that requires every element to hold it together. It is designed to provide federal policymakers and regulators with a selection of policy ideas to help solve specific challenges in how our nation produces, transports, and consumes energy.

SECTORS

The PowerBook is divided into five economic sectors: power, transmission, buildings and efficiency, industry, and transportation. Each sector includes multiple components, which are specific elements of that sector that require some policy change. Components that impact multiple sectors, such as clean energy finance or regulatory reform, are included in a sixth cross-sector section.

COMPONENTS

Each component has three parts: a short overview, an analysis of the challenges and opportunities for energy, employment, and the environment, and an implementation section that outlines specific actions that Congress, the administration, or the independent regulatory agencies can take. The policy recommendations in the implementation section are intended to serve as frameworks for more detailed legislation or regulatory reform proposals.

The components in the PowerBook reflect the input from a broad group of business leaders, policymakers, analysts, and academics. We will update them regularly to add new policy ideas, revise existing proposals, and reflect progress made in Congress or through the regulatory process. We invite readers to provide us suggestions to build upon the proposals in our components or new policies we should consider adding. Please send us your comments via the contact page.

OUR ANALYSIS

The PowerBook provides both pragmatic ideas to move America toward cleaner energy and data showing the potential impacts that these policies could have on our energy systems and economy. By combining several datasets, from economy-wide to industry-specific, we have developed a basic methodology for each component to estimate the effects these policies would have on CO2, conventional pollutants, and domestic energy needs. While future, independent modeling will provide higher accuracy, the current metrics offer a general barometer of impact and a way to compare the effects of various components.